What is the ESG reporting framework? ESG stands for Environmental, Social and Governance. It’s become a popular measurement for assessing the quantitative and qualitative aspects of an investment’s environmental, social and governance risk.
When you consider shifting attitudes towards social responsibility, both from consumers and businesses, as well as the rise of ESG investing in general—it becomes clear why this framework is gaining traction. In fact, 77% of institutional investors say ESG factors are “an integral part of sound investing.”
We know many businesses are searching for ways to remain sustainable and socially responsible, as these traits are positive points for investors, governments, and customers. After all, what supports a transaction more than knowing you’re doing it with a company that cares about its impact on society?
With many companies looking to embrace the ESG framework, it’s important to understand how it works, what ESG compliance looks like, and what solutions you have available to you.
The Basics of the ESG Framework
The ESG framework is made up of three core categories, which include:
- Environmental: This refers to how “green” your organization is. How does it manage its carbon footprint and impact on the planet? Are you using resources efficiently? Are you undergoing proper waste management to minimize carbon emissions and sustain biological environments? Cutting corners when it comes to considering environmental impact can lead to lost investments, poor consumer sentiment, reputational damage, and other economic risks.
- Social: This refers to how a business treats its surrounding people and cultures, including labor rights, privacy protections, customer satisfaction, and also how you treat your employees.
- Governance: This refers to how well-managed a company is on the inside. Doing well in this category involves instilling the right policies and procedures into your workflow to reduce regulatory noncompliance. It also means transparency in your processes, your ability to audit yourself, and the makeup of your executive boards.
Having a formalized ESG analysis framework in place helps build resilience in the long-term and promote positive financial health. In other words, it’s more than just a business buzzword, so let’s start talking about building a reporting framework for ESG.
Why Is ESG Reporting Important?
There’s a reason why administrators record, save, and release data covering day-to-day operations in the context of environmental, social, and corporate governance. This information shows off how well you adhere to positive ESG guidelines.
Not all governments require ESG reporting yet, but the more forward-thinking business managers understand the need for it anyway. A strong ESG performance means higher revenue, less risk, and more business resilience during tough, competitive quarters.
ESG is also a focal point for investors looking for trustworthy companies to work with. Reporting on your progress in this field shows that you are transparent about your internal processes and make an effort towards bettering your performance.
The Checklist For ESG Reporting Best Practices
Data collection is ultimately the biggest hurdle for smaller to medium-sized organizations, as the cost of tracking everything about environmental, social and governance activities can be fairly high with traditional approaches.
To provide high-quality, data-driven insights for your investors, you should work with the tools you have available to incorporate ESG strategies into your workflow. A quick checklist might include steps like:
- Putting together a dedicated team or individual to pursue ESG planning and reporting.
- List out and prioritize sustainability issues that matter the most to your stakeholders and investors.
- Don’t be afraid to hire experts in the field of ESG to help out and provide insights that will put you in line with industry standards.
- Have a plan for communicating your findings clearly to stakeholders at the end.
- Implementing a tool like Centraleyes to manage an ESG framework
And don’t forget that ESG performance optimization is a continual process that can’t be finished in one day. Regularly engage with stakeholders to find out the latest sustainability issues that matter most.
ESG Framework Examples
There are multiple ways to approach ESG reporting, and the lack of a common methodology has left some administrators confused about how to approach the topic themselves.
Nonetheless, being able to measure how your business impacts the world around it is an essential task, and here are some of the ways other organizations, both national and international, go about the process.
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Global Reporting Initiative (GRI)
Developed by an international team over the course of several years with a wide variety of stakeholders, the Global Reporting Initiative is largely considered the world standard for disclosing the sustainability of businesses and governments.
The framework covers topics like environmentalism, human rights, and corruption. It rewards companies that practice healthy supply chain policies, clear communication, and mechanisms for controlling environmental emissions.
GRI considers both internal and external stakeholders. The former group comprises employees and management alike, while the latter refers to customers, shareholders, suppliers, the government, and society in general.
The United Nations Sustainable Development Goals (SDGs)
Adopted in 2015 to achieve a list of 17 goals by 2030, the SDG by the United Nations is the manifestation of various sustainable development objectives:
- Ending poverty
- Better quality education
- Higher standards of health
- Protecting Earth’s biomes and resources
SDG was intended for the United Nations member states, but it has recently partnered with the Global Reporting Initiative to help businesses report on their own progress.
EU Guidelines on Reporting Climate-Related Information
Over 6,000 companies within the European Union receive these recommendations for reporting on climate-related activities. These guidelines also involve:
- The Non-Financial Reporting Directive (NFRD) for disclosing information not directly related to financials.
- The “EU Taxonomy” developed by the European Commission’s Technical Expert Group on sustainable finance (TEG). This classification system scans energy, transport, manufacturing, and other sectors for ways to improve the impact on climate.
- The implementation of the Task Force on Climate-related Financial Disclosures (detailed below).
The EU intends on making it easier for businesses to report on their impacts on the global climate.
The Task Force on Climate-related Financial Disclosures (TCFD)
The TCFD is an instance of the industry voluntarily agreeing to a set of ESG reporting standards. It largely dealt with financial markets like insurers and lenders and helped disclose opportunities and risks related to climate. TCFD has since become mandatory recently as per the UN Principles for Responsible Investment.
Other Frameworks of ESG Reporting
Whether they apply to the world as a whole or just one region or nation, ESG is a global phenomena that manifests in several agreed-upon frameworks like the ones below.
- UN Principles For Responsible Investment (PRI): Investors will be particularly interested in the UN’s solution to help them pick and choose investments according to ESG standards. The PRI contains a total of six principles and manages over $80 trillion in total assets.
- Sustainability Accounting Standards Board (SASB): Covering all three components of the ESG acronym, the SASB handles how businesses in various industries can gather standardized metrics for effective reporting.
- The Climate Disclosure Standards Board (CDSB): As its name implies, the CDSB covers environmental and climate-related information in corporate financial reports. The system was devised by a global group of companies looking to make environmental-friendliness a factor when capital market investors choose their investments.
- The Carbon Disclosure Project (CDP): The CDP based in the United Kingdom aims to disclose the environmental impact of not only businesses but also government entities like cities, states, and regions. It currently ranks thousands of companies and hundreds of cities around the world. CDP considers various environmental factors like deforestation, water quality, carbon emissions, and the use of natural resources.
It’s clear that ESG reporting is at the center of attention no matter where you do business. Frameworks like the ones here prompt business administrators to start focusing on ESG reporting and investment in the coming years.
Take the Centraleyes Route to Manage Your ESG Framework
ESG and legal compliance go hand-in-hand. Improving your ESG posture will make your company more attractive to investors, regulatory bodies, and the public in general.
Although achieving effective ESG reporting may seem like a daunting task, with automation and a platform like Centraleyes, it doesn’t have to be.
Risk management platforms allow you to automate ESG framework management, giving you a powerful out-of-the-box solution that includes ready-made assessments, live reporting, dashboards, and reports.